Financial Planning Through the Ages: Top Tips for Seventy Somethings

Seventy Somethings are more active than ever but many worry about outliving their money or having a health concern that puts their future at risk.  If you are in your seventies you need to know the lifestyle you can afford and how you will create the “paycheck” to pay for it.  Here is our list of top financial tips to live life your way in your seventies.

Step on the Financial Scale.Unless you know your financial reality, you don’t know if you are overspending, whether you need to downsize or if you are needlessly cutting back.  Start by looking at your regularly occurring income, such as Social Security benefits, as well as any pension or earned income.  Next, estimate your expenses.  Some expenses recur each month and others occur annually or semi-annually. Our downloadable expense worksheet can help you get started tracking your expenses but you may need to keep track of expenses for a couple of months to get a good estimate.  By now you know that Medicare doesn’t cover everything so be sure to include the premiums you pay for Medicare plus any co-pays and deductibles or supplemental insurance and prescription drug plan premiums.  You might also want to include some expenses for vision and dental care and other miscellaneous medical expenses.

Consider Your Long-Term Care Options.Most people over age 65 will have some health issue during life that requires a stay in a long-term care facility or the need to have someone at home to help with the activities of daily living (getting around, eating and bathing), but Medicare doesn’t cover long-term care (LTC). If you don’t have a LTC insurance policy, you should either set aside funds to cover this likely future cost or put some thought into how you’d raise the funds to cover this cost if you need the care, including looking at downsizing your home. Many people in their seventies still qualify for LTC insurance so ask your advisor for assistance in investigating your options.  If you qualify for a policy that makes sense, be sure you’ve accounted for the premiums in your calculations to determine if your spending is on track.  Your seventies are also the time to start talking with your spouse and family about where you would want to receive care if the need arises and to consider making some specific provisions in your estate plan addressing your LTC wishes.   Many estate plans provide little guidance as to how your assets should be used during your incapacity so you might want to clarify the extent to which you want your assets to provide for your care even if this leaves little to inheriting beneficiaries.

Confirm Your Spending is Sustainable or Make Adjustments.Once you know what income you expect and what it will take to cover your expenses, it is easy to determine how much to pull from your portfolio to create your retirement “paycheck.”  Knowing this amount allows you to crunch some numbers to determine if the amount you need to take from your nest egg is an amount that you can sustain throughout your lifetime.  Expert opinions vary as to what is a safe withdrawal rate (typically 3-6% of your nest egg), but since you can’t easily replenish your nest egg at this stage you shouldn’t rely on rules of thumb.  You can run some more specific numbers using an online calculator, but we recommend professional help in developing your assumptions and creating a plan as even slightly different inputs can significantly affect the outcome.  Your Beacon Pointe advisor can help you create a plan that considers your expected health care costs, inflation and the cost of long-term care.  With a financial plan you will have the framework to determine whether you can afford to help pay for grandchildren’s college, buy a second home or decide to downsize or scale back to feel a bit more secure.  Downsizing not only gives you funds to add to your nest egg or reduce your mortgage debt, it typically also reduces your utility, maintenance and property tax bills.

Thoughtfully Create Your Retirement Paycheck.Once you the amount to pull from your portfolio to avoid the risk of running out of funds, the next question is how to make the most out of your nest egg. Potential options include raising the rest of the cash you need taking into consideration taxation and the need to keep your asset allocation on target. We recommend you at least raise the cash you will need to pull from your portfolio for the next 3-6 months and hold the funds in cash or cash alternatives (short-term CDs, money market funds) to minimize having to pull from your portfolio during a market downturn.

To create your paycheck, you will  first supplement your regular income with what you must take as required minimum distributions (“RMDs”) from your retirement accounts (401(k)s, Traditional IRAs) to avoid facing the hefty penalty that applies if you don’t take distributions once you’ve reached age 72.  It then typically makes sense to raise cash from your tax-free or taxable investments rather than pull additional funds out of your retirement accounts where they would otherwise continue to grow on a tax-deferred basis.  Your investment advisor can help you consider how to best raise the cash among your tax-free and taxable investments by looking at what bonds may mature, considering the need to rebalance your investment portfolio and the tax implications of the sale of certain investments. In this low interest rate environment, a portfolio rarely produces all the income needed to supplement a retiree’s income to meet expenses so it’s typical to need to delve into principal (sell investments) to raise cash.  This shouldn’t be concerning provided that you or your advisor have crunched the numbers and are confident that your nest egg can support your needed withdrawals.  Once you’ve exhausted your personal or trust accounts then seek additional income from your retirement accounts.


Financial Priorities

Review Your Asset Allocation.Since you are likely retired or retiring soon, you need to make the most of your one and only nest egg. It is a good time to get professional help to make sure you are diversified and to determine if a portion of your portfolio should be invested more conservatively.  On the flip side you don’t want to be too conservative because you might not touch a portion of your portfolio for 10-20 years.  If you are invested too conservatively you might lose out on the potential for growth that can help stretch your nest egg over your lifetime and keep up with the ravages of inflation so seek a balance between long-term appreciation and safety.

Consolidate Your Investments.Now is also a good time to consider consolidating your investments with one firm to make it easier to see that your portfolio is properly diversified, in balance and to most efficiently create the retirement income you need. If you have left a retirement account with a previous employer consider rolling over your workplace retirement account (401(k), profit-sharing plan, etc.) into an Individual Retirement Account (IRA) to be able to select a wider range of investments and simplify your management of your portfolio.  Just consider keeping any rollover IRA separate from your other IRAs as there may be some additional creditor protection benefits of doing so.  We can typically help you accomplish the rollover without triggering income tax or losing the tax-deferred benefit of your plan.

Review Your Estate Plan.You probably have already created your plan as to who and how key people will distribute your assets and care for you on your incapacity or death, but if you haven’t reviewed it in the last five years or since a major life event (e.g., marriage, divorce or the birth or death of a loved one) it is time to meet with your estate attorney. You should also check your beneficiary designations on life insurance, annuities, IRAs, and workplace retirement plans since neither your will nor trust controls who gets these assets on your death and you want to make sure these potentially valuable benefits pass to the right people right now.


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